XpressWest Has $1.5 Billion In Private Investors – And A Strong Argument for Victorville
The California high speed rail project closest to completion isn’t the San Francisco to Los Angeles route being built by the California High Speed Rail Authority. It’s XpressWest, formerly known as DesertXpress, which would connect Las Vegas to Los Angeles via Victorville and Palmdale. The project has sometimes appeared to be more promise than reality, but in 2012 it has taken some big leaps toward getting construction under way. And as a new interview with a key figure shows, the project already has $1.5 billion in private funding commitments. It also has research showing that the initial terminus of Victorville makes a lot of sense, challenging the critics who have often blasted that location.
Tony Marnell is probably best known as the builder of the Bellagio, the Mirage and Wynn Las Vegas or the owner and operater of the Rio before it was sold to what is now Caesars Entertainment.
But he’s also a key figure in the development of XpressWest, the high-speed rail system planned between Las Vegas and Southern California. Marnell is chairman and CEO of the Marnell Companies, a partner in the project….
[Quoting Marnell here:] We’re putting up $1.5 billion. I can’t disclose who they are right now. We’re under confidentiality agreements with the U.S. government. They know all of this information, and we have agreed that we are not going to go through the loan process in the public.
If it’s decided on, it will become public information. If we’re denied the loan, as a private company, we don’t think we should have to disclose it.
It’s not a public opinion poll. It’s a real project and has a real purpose for a real need. It’s being presented as a business proposition under existing laws and statutes. There has not been one penny, and there is not one penny intended, of taxpayer or grant money in the application at this point in time. It’s private capital and infrastructure financing instruments.
One can speculate as to who these other investors are, but if you guessed “other Vegas casinos” you would probably not be wrong. They can read a gas price chart as well as anyone and know that as gas prices continue to rise, driving to Vegas isn’t going to be as affordable an option for Southern Californians as it once was. They can also read a traffic report, and know that Interstate 15 routinely backs up on weekends, further deterring drivers.
So encouraging travelers to get on a train makes a lot of sense. But where would Southern Californians board it? The current plan is that a first phase would be built to Victorville, with an extension across the desert to Palmdale and connecting to LA soon to follow. The interview with Marnell has some good discussion of the LA connection, but I thought his justification of Victorville was worth reading:
Q: Why Victorville?
A: I may have had a bit of an advantage because for 10 years I was the CEO of a public company that owned the Rio. I could look at the slot cards of my customers that list their ZIP codes. That was an ingenious thing.
Steve Wynn (chairman of Wynn Resorts), Jim Murren (CEO of MGM Resorts International) and Sheldon Adelson (chairman of Las Vegas Sands and owner of the Venetian) were doing that – looking at where their driving customers were coming from. And they’re not coming from Beverly Hills, Santa Monica, Laguna Beach or downtown Los Angeles. They’re coming from the Inland Empire.
The Inland Empire is only 40 minutes away from Victorville. That’s why it makes sense.
That’s a really interesting comment, and not just because I’m a bit surprised he said that publicly. It shows that the Vegas casinos see the Inland Empire as a key source of visitors, and they’ve got the evidence to back it up. These casino owners are not idiots, as any of you who have left your money with them can attest. If they say that building a bullet train with a terminus at Victorville is good for their bottom line, and if they’re willing to show some evidence for it, I don’t see the point in trying to argue with them.
The other reason this is interesting is it suggests another reason for building XpressWest – they might be trying to attract visitors from cities like Beverly Hills, Santa Monica, and downtown LA. It’s a pain in the ass to drive to Vegas from the coastal parts of SoCal on a Friday or Saturday. But taking Metro Rail to Union Station and boarding a bullet train for Vegas is a lot easier – certainly more relaxing. One could start drinking on the train and by the time you get to Vegas be in a perfect, uh, mood to hit the casino floor or a club.
The interview is full of interesting details, including about train speeds, express service, and comparisons to other HSR systems. But the big question everyone asks is how this will be paid for, because the $1.5 billion private investment won’t be enough. Marnell has more information about the federal loan they’re seeking:
We’re in continual Q&A regarding the loan application. Like any large loan, there are tedious, extensive amounts of information that the lender wants to have, which we certainly appreciate. We’ve been in that mode vigorously for the last 90 days. We’re at the point of making sure we have the right backup, the right information….
this loan we’re applying for was put into place by Congress in the last year of Bill Clinton’s administration. This is not some new thing. It’s all Republicans and Democrats.
If we want private industry to get involved in developing our rail system and wean ourselves off Amtrak tax support, why not put an instrument in here that private industry can work with? The single biggest question I get is, if it’s such a good idea, why don’t you go to the bank and get the money? The last banker that gave me a 30-year loan was when I was 23 years old. There are no 30-year loans for these kinds of projects. The only way people do big infrastructure projects is through the government. Commercial banks won’t do it.
Next, this is not a Solyndra situation. The project itself has been administered by the Federal Railroad Administration under two different presidents so far. When we received our environmental impact statement more than a year ago, we had to state our probable sources of funding. We identified the loan program in the document as a probable partial funding source. We applied for the loan 19 months ago, so this is not something where somebody called up and said, “Give this cowboy in Las Vegas a loan.” It has had true due diligence, and it’s going on right now on this loan. I don’t think people understand that.
He’s got a strong point here about the need for government support to build infrastructure, and he’s absolutely right that it’s absurd to expect the private sector do this all on their own. Commercial banks just don’t do loans for these kinds of big, costly infrastructure projects. As the Taiwan HSR experience showed, you can’t repay the loans quickly enough to satisfy the private lenders. So it has to be government that helps support construction.
The whole thing is worth reading, and makes it very clear that XpressWest is a strong, credible, serious HSR project that is on the verge of construction. It’s a key piece of high speed rail in California, and I for one am looking forward to riding it when it opens.